TY - JOUR
T1 - Do People Respond to the Mortgage Interest Deduction? Quasi-Experimental Evidence from Denmark
AU - Gruber, Jonathan
AU - Jensen, Amalie Sofie
AU - Kleven, Henrik
PY - 2021
Y1 - 2021
N2 - Using a major reform which scaled back the mortgage interest deduction for middle- and high-income households in Denmark, we study how tax subsidies affect housing decisions. We present four main findings. First, the mortgage deduction has a precisely estimated zero effect on homeownership for high- and middle-income households. Second, the mortgage deduction has a clear effect on housing demand at the intensive margin, inducing homeowners to buy larger and more expensive houses. Third, the deduction has sizeable effects on household financial decisions, inducing them to increase indebtedness. Finally, the reduction of the tax subsidy lowered equilibrium house prices.
AB - Using a major reform which scaled back the mortgage interest deduction for middle- and high-income households in Denmark, we study how tax subsidies affect housing decisions. We present four main findings. First, the mortgage deduction has a precisely estimated zero effect on homeownership for high- and middle-income households. Second, the mortgage deduction has a clear effect on housing demand at the intensive margin, inducing homeowners to buy larger and more expensive houses. Third, the deduction has sizeable effects on household financial decisions, inducing them to increase indebtedness. Finally, the reduction of the tax subsidy lowered equilibrium house prices.
U2 - 10.1257/pol.20170366
DO - 10.1257/pol.20170366
M3 - Journal article
VL - 13
SP - 273
EP - 303
JO - American Economic Journal: Economic Policy
JF - American Economic Journal: Economic Policy
SN - 1945-7731
IS - 2
ER -